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HELPFUL MORTGAGE TERMS

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Here are some of the most common mortgage terms and their definitions.

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Abstract (Of Title): A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause: A stipulation or condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Acceptance: When both the seller and buyer, have agreed to and completed signing and/or initialing the contract where the seller accepts the offer of the buyer.

Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is not fixed but is tied to an index and is periodically adjusted as the rate index moves up or down. Such ARM mortgages commonly have an option to convert to a fixed rate mortgage.

Adjustment Period: The length of time between interest rate changes on ARM. For example, a loan with an adjustment period of one-year ARM, which means that the interest rate can change once a year.

Agreement of Sale: Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Amortization: A reduction in a debt or fund by periodic payments covering interest and part of principal

Amortized Mortgage: One in which the mortgagor pays the current interest charge as well as a portion of principal in his periodic payment.

Annual Percentage Rate (APR): The actually cost of borrowing money, expressed in form of annual interest rate to make it easy for one to compare cost of borrowing money among several lenders or sellers on credit. Full disclosure of interest rate and other charges is required by the Truth-in-Lending Act.

Application: A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.

Appraisal: A valuation or estimation of the value of property by disinterested person(s) of suitable qualifications.

Appraised value: An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.

Appraiser: A person qualified by education, training, and experience to estimate the value of real and personal property.

Appreciation: An increase in value; the opposite of depreciation.

Assessment: The process of placing a value on property for the strict purpose of taxation. may also refer to a levy against property for a special purpose, such as a sewer assessment.

Assumption of Mortgage: An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

Balloon-Payment Mortgage: A mortgage requiring interest payments (or interest and some principal) for a specified period and full payment of the balance of the principal (a balloon payment) at the end of the period as the periodic payments will not pay off the loan at the end of the term.

Balloon payment: The unpaid principal amount of a mortgagee or other long-term loan due at a certain date in he future, usually the amount that must be paid in a lump sum at the end of the term.

Binder, insurance: A written evidence of temporary hazard or title coverage that only runs for a limited time and must be replaced by a permanent policy.

Blanket Mortgage: One which conveys title to or creates a lien on all the borrower's assets or a substantial portion of them rather than on a specific asset.

Borrower: One who receives funds with the expressed or implied intention of repaying the loan in full.

Building Line or Setback: Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy-Down: Money that is paid by or on behalf of a homeowner at the time of purchase to reduce the mortgage interest rate and thereby lower monthly payments. Home builders often offer buy-downs.

Caps (Interest): Consumer safeguards limiting the amount. They include the limitation on the interest rate increase of either the periodic or lifetime rate or both for an adjustable rate mortgage.

Cash Reserves: The amount of the buyer's liquid cash remaining after making the down payment and paying all closing costs.

CC&R's: Covenants, conditions and restrictions. A document that controls the use, requirements and restrictions of the property.

Certificate Of Occupancy (CO): Written authorization given by a local municipality that allows a newly-completed or substantially-completed structure to be inhabited. The issuing of a CO means that: the home is SAFE, SOUND & SANITARY, and has matches the PLANS & SPECIFICATIONS given to the Appraiser at the beginning of the Loan Process.

Certificate of Commitment: The lender's approval of a VA loan, which is usually good for up to six months.

Certificate of Reasonable Value (CVR): A document that establishes the maximum value and loan amount or a VA guaranteed mortgage.

Certificate of Title: A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Chattel: Personal property.
Chattel Mortgage: A mortgage secured by personal property.

Closed-End Mortgage: One in which neither the property mortgaged nor the amount borrowed may be altered during the term of the mortgage.

Closing or Close of Escrow: The final steps in the sale of real estate, where in a meeting between the buyer, seller and lender (or their agents), consideration is paid, mortgage is secured, title is transferred, deed is delivered or placed in escrow.

Closing Costs: Expenses which must be paid in addition to the purchase price on the sale of real estate. Closing costs can include (a) fees for title examination, title insurance, (b) fees for preparation of a deed, settlement statement or other documents, (c) escrows for future payments of taxes and insurance, (d) fees for notarizing deeds and other documents, (e) appraisal fees, and (f) credit reports.

Cloud (On Title): An outstanding claim or encumbrance which adversely affects the marketability of title.

Commission: Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price (5 to 7 percent on houses, 10 percent on land).

Commitment Period: The period during which a loan approval is valid.

Comparative Market Analysis: An opinion of the market value of a home expressed by a real estate agent and not an appraiser.

Condemnation: The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium: Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.

Consideration: Anything of value to induce another to enter into a contract, i.e., money, services, a promise.

Consolidated Mortgage: A single mortgage given to replace or to combine several outstanding mortgages.

Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Contract of Purchase: Same as Agreement for Sale and known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Contract of Deed: An agreement by a seller to deliver the deed to the property when certain conditions have been met, such as completion of payments by purchaser.

Contract of Sale: Agreement under which seller agrees to convey title to property upon payment by buyer under terms of contract.

Contractor: In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Construction Draw Mortgage: Type of mortgage used to finance building construction.

Construction loan: A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Conventional Mortgage: Common security device used to purchase a home by transferring to the bank or other financial institution a lien or legal title in return for the price or part of the price of the home. It is a mortgage loan not insured by HUD or guaranteed by the Veterans' Administration.

Conversion Clause: A provision in some ARMs that enables homebuyers to change an ARM to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversion feature may cost extra.

Cooperative Housing: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Co-signer: A person who signs a legal instrument and therefore becomes individually and jointly liable for repayment or performance of an obligation.

Credit Report: A document from a credit bureau setting forth a credit rating and financial data concerning a person or a company, in evaluating a credit risk. Credit reporting practices are regulated by the federal Fair Credit Reporting Act.

Debt-Equity Ratio: An amount arrived at by dividing total liabilities by total equity of an entity. A high debt ratio is an indication that the entity may have difficulty meeting obligations which come due.

Deed: A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.)

Deed of Trust: Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.

Deposit: (Same as Earnest Money) The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Default: Failure to meet legal obligations of a contract, specifically monthly payments on a mortgage. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.

Deferred Interest: When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

Depository Institution: A bank, brokerage firm, or a managing firm of 401k, IRA or similar vehicles.

Depreciation: Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Direct Reduction Mortgage: An amortized mortgage by which principal and interest payments are paid at the same time (usually monthly) with interest being computed on the remaining balance.

Discount Points: A loan fee charged by a lender of FHA, VA, or conventional loans to increase the yield on the investment. One point = 1% of the loan amount.

Documentary Stamps: A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Down Payment: The portion of purchase prices which is generally required to be paid at time purchase and sale agreement is signed. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.

Draw System: Scheduled payment of money to a builder during the phases of home construction. Between each draw, the appraiser must inspect the home to ensure that construction is proceeding as planned.

Due-On-Sale Clause: A provision usually found in a note or mortgage whereby the entire debt becomes immediately due and payable at mortgagee's option upon sale of mortgaged property. Such clauses are used to prevent subsequent purchasers from assuming existing loans at lower than current market rates.

Earnest Money: Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Easement Rights: A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Eminent domain: The right of a government to take private property for public use upon payment of its fair value.

Encroachment: An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance: A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Equity: The value of property over and above the indebtedness against it (e.g., market value of house minus mortgage). The difference between the fair market value and debt in property; thus, an equity of $5,000 may come about by having fair market property value of $20,000 with debt of $15,000.

Escrow: An account typically held by the lender into which a home buyer pays money for taxes or insurance payments, and sometimes earnest money.

Escrow payment: That portion of a mortgagor's monthly payment held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as impounds or reserves in some states.

Exclusive right to sell (Listing): A written contract giving a licensed real estate agent the exclusive right to sell a property for a specified time. The owner agrees to pay a full commission to the broker even though the owner may sell the property.

Fair Market Value: The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent data and neither of whom is under any compulsion to buy or sell.

Fannie Mae: see Federal National Mortgage Association.

Farmers Home Administration (FMHA): Division of the Department of Agriculture engaged in making direct mortgage loans to farmers and also home mortgage insurance and guarantee programs in rural areas and small towns.

Federal Home Loan Bank Board: Federal agency formerly charged with regulating federal savings and loan associations and the Federal Home Loan Bank system. This agency was abolished in 1989 and its functions replaced with the Office of Thrift Supervision and the Federal Housing Finance Board.

Federal Home Loan Mortgage Corporation (FHLMC): Federal agency which purchases first mortgages (both conventional and federally insured) from members of the Federal Reserve System, and the Federal Home Loan Bank System. The short name for this organization is "Freddie Mac."

Federal Housing Administration (FHA): Federal agency established by Congress in 1934, which insures mortgage loans made by FHA-approved lenders on homes that meet FHA standards in order to make mortgages more desirable investments for lenders.

Federal National Mortgage Association (FNMA): Organized 1938 by Congress to provide a secondary mortgage market for purchase and sale of mortgages guaranteed by Veterans Administration and those insured under Federal Housing Administrations. The short name for this organization is "Fannie Mae".

Fee Simple: An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. The greatest interest a person can have in real estate.

FHA Mortgage: One in which the loan has been insured in whole or in part by the Federal Housing Administration.

Fiduciary: A person in a position of trust and confidence for another.

Firm commitment: A lender's agreement to make a loan to a specific borrower of a specific property.

First mortgage: A mortgage having priority over all other voluntary liens against certain property.

Fixed-Rate Mortgage: Such mortgage specifies an interest rate that stays fixed for the life of the mortgage regardless of market conditions.

Foreclosure: Procedure by which mortgaged property is sold on default of mortgagor in satisfaction of mortgage debt. This is also referred to as "repossession of property".

Fully Indexed Rate: The maximum interest rate on an ARM that can be reached at the first adjustment.

General Warranty Deed: A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Gift Letter: A letter from a relative stating that an amount will be gifted to the buyer and that said amount is not to be repaid.

Government National Mortgage Association (GNMA): Agency of Federal government (division of HUD) which is primarily engaged in purchasing on the secondary market federally subsidized residential mortgages (FHA or VA) originated by local lenders, and also in guaranteeing payment of securities backed by residential mortgages. The short name for this organization is "Ginnie Mae."

Graduated Payment Mortgage: Residential mortgage which has monthly mortgage payments that start at a low level and increase at a predetermined rate.

Grantee: That party in the deed who is the buyer or recipient.

Grantor: That party in the deed who is the seller or giver.

Hazard Insurance: Protects against damages caused to property by fire, windstorms, and other common hazards.

Holdback: That portion of a loan commitment not funded until some additional requirement such as rental or completion is attained. In construction it is a percentage of the contractor's draw held back to provide additional protection for the interim lender, often in an amount equal to the contractor's profit.

Home Inspection Report: A qualified inspector's report on a property's overall condition. The report usually included an evaluation of both the structure and mechanical systems.

Home Warranty Plan: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Housing Expenses: Monthly principal, interest, taxes and insurance.

HUD: U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

Index: Term used to determine adjustable-rate mortgage interest rates after the discount period ends. Common indexes for ARMs are one-year Treasury securities and the national average cost of funds to savings and loan associations.

Interest: A charge paid for borrowing money.

Interest rate: The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage.

Involuntary lien: A lien imposed against property without consent of an owner. Examples include taxes, special assessment, federal income tax liens, mechanics liens, and materials liens.

Investor: A money source for a lender.

Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent's interest in the property.

Jumbo Loans/Jumbo Mortgage: A loan that's larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, hence usually carries a higher interest rate and have separate underwriting guidelines.

Land contract: A contract ordinarily used in connection with the sale of property in cases where the seller does not wish to convey title until all or a certain part of the purchase price is paid by the buyer. This financing vehicle is often used when property is sold on a small down payment.

Lease: A written document containing the conditions under which the possession and use of real or personal property are given by the owner to another for a stated period and for a stated consideration.

Legal description: A property description recognized by law which is sufficient to locate and identify the property without oral testimony.

Lessee (tenant): The person or persons holding rights of possession and use of property under terms of a lease.

Lessor (landlord): The one leasing property to a lessee.

Licensed Mortgage Broker: The licensed person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. A firm or individual bringing the borrower and lender together and receiving a commission. A mortgage broker does not retain servicing.

Lien: A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.

Limited partnership: A partnership that consists of one or more general partners who are fully liable and one or more limited partners who are liable only for the amount of their investment.

Loan: A sum of money loaned at interest to be repaid.

Loan Commitment: A written promise to make a loan for a specified amount on specified terms.

Loan Processing: (1) A System by which a Buyer is evaluated for loan approval. The system compares the stated income, debt, savings and credit against documentation provided by the buyer (or alternative Federal documents). Calculations of Debt-To-Income, Loan-To-Value, Net Worth, Cash Reserves and Compensating Factors are used to develop and Underwriting Opinion. (2) The system of structuring a Buyer's financial situation and documentation in such a way that an Underwriting Opinion can be reached.

Loan submission: A package of pertinent papers and documents regarding specific property or properties. It is delivered to a prospective lender for review and consideration for the purpose of making a mortgage loan.

Loan-to-Value Ratio: The percentage of purchase price to be financed with a mortgage. Common ratios are 80 and 90 percent. A down payment covers the rest of the purchase price.

Lock or lock-in: Lender's guarantee that the mortgage rate quoted will stand for a specific number of days from the date of the application.

Margin: Amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value: The price property would command in the open market. The highest price a willing buyer would pay and a willing seller accept, both being fully informed and the property being exposed for a reasonable period of time.

Marketable Title: A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Metes and bounds: A description in a deed of the land location in which the boundaries are defined by directions and distances.

Mortgage: A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off. The word Mortgage literally means "Dead Pledge". It is derived from Old French. It's a compound form of "Mort" = "dead" and "Gage" = "pledge". The notion behind the word is...... that if the mortgagor (also known as the borrower) fails to re-pay the loan, the property that has been "Pledged" as security is lost or becomes "Dead" to him or her.

Mortgagee: A lender.

Mortgagor: A borrower.

Mortgage Banker: A person or firm engaged in the business of dealing in mortgages including their original placement, servicing, refinancing, and resale to other investors. Normally the banker uses its own funds as opposed to a commercial or savings and loan bank which uses primarily funds of depositors. Some mortgage bankers do provide long term (permanent) financing, the majority specialize in short term financing.

Mortgage Broker: Person or firm who functions as intermediary between borrower and lender in securing loans, or places loans with investors.

Mortgage Commitment: A formal written communication by a lender, agreeing to make a mortgage loan on specific property, specifying the loan's amount, length of time, and other conditions.

Mortgage Company: A firm engaged in the business of originating and closing mortgages which are then assigned or sold to investors.

Mortgage Contingency Clause: Clause in an agreement for sale of real estate conditioning the purchaser's performance on his obtaining a mortgage from a third party.

Mortgage Deed: Companion legal document to promissory note recorded by the county enumerating the lender's procedure to enforce loan terms.

Mortgage Discount: The difference between the principal amount of a mortgage and the amount it actually sells for. Sometimes called points, loan brokerage fee.

Mortgage Insurance: Insurance intended by the policy owner to pay off the balance due on a mortgage upon the death of the insured or to meet the payments on a mortgage as they fall due in case of the death or disability of the insured.

Mortgage Insurance Premium: The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage Life Insurance: A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage Note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgage (Open-End): A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

Mortgage Point: 1% of the mortgage, charged by the mortgagee up front as a cost of financing.

Mortgage Servicing: The responsibilities (which may be undertaken by a service company hired by the original lender) of mortgage lending, such as collecting installment payments, releasing liens, initiating foreclosure upon default, etc.

Mortgaging Out: The process by which a mortgagor secures 100% financing of his purchase. He purchases property with no money of his own but entirely with mortgage money.

Negative Amortization: Occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid principal balance, which means that even after several payments the borrowers could owe more than they did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest.

Note: Promissory note to lender detailing terms of repayment of amount borrowed.

Offer to Purchase: A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

One-Year Adjustable Mortgage: Mortgage with an annual rate which changes yearly based on movements of a published index plus a margin specified by the lender.

Origination: The process of originating mortgages. Solicitation may be from individual borrowers, builders, or brokers.

Origination Fee: The charge by a lender for preparing loan documents, making credit checks, appraisals, inspections of a property.

Originator: A person who solicits builder, brokers, and others to obtain applications for mortgage loans. origination is the process by which the mortgage lender brings into being a mortgage secured by real property.

Payment Cap: The maximum amount the payment can adjust in any given time frame.

Personal Finance: The principles of finance as they relate to an individual or family unit. Personal finance may include but is not limited to checking or savings accounts, loans, mortgages, credit cards, retirement funds, income taxes, and insurances.

PITI (principal, interest, taxes, and insurance): The principal and interest payment on most loans is fixed for the term of the loan; the tax and insurance portion may be adjusted to reflect changes in takes or insurance costs. Note: In cases where the buyer puts down less than 20% of the Sales Price, Mortgage Insurance may be required as part of the Total Monthly Payment (PITI).

Plans and specifications: Architectural and engineering drawings and specifications for construction of a building or project, including a description of materials to be used and the manner in which they are to be applied.

Plot: A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Points: A fee equal to one percent of the principal amount of the loan which is collected by the lender at the time the loan is made. It's collected only once, at inception of the loan.

Preclosing: A transaction preceding the formal closing, often used to settle outstanding issues (survey, pest inspection, hazard insurance, flood insurance (if required), with the formal closing shortly thereafter.

Prepaid Expenses: Needed to create an escrow account. They can included taxes, hazard insurance, private mortgage insurance, and special assessments.

Prepayment: Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.

Prepayment Penalty: A penalty under a mortgage imposed when the loan is paid before its due date. Consideration to terminate loan at borrower's election before maturity. Not allowed for FHA or VA loans.BR>

Principal: The sum of a debt or obligation, as distinguished from interest or other additions to it.

Private Mortgage Insurance (PMI): If a borrower does not have a 20% down payment, a lender may take a smaller down payment provided the borrower agrees to carry private mortgage insurance. This insurance usually requires a initial premium payment.

Public Adjuster: Representative hired by a policyholder to estimate damages and represent the policyholder in negotiations with an insurance company. Usually hired when there is extensive damage to a house, for example.

Purchase Agreement: Same as Agreement For Sale and known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Qualify: The process where the buyer meets the requirements as set forth by the lender when obtaining a mortgage.

Quitclaim Deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. (See deed.)

Real Estate Broker: A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Realtor: A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Reconveyance: The transfer of land from one person to the immediately preceding owner. It is used when the performance of debt is satisfied under the terms of a deed of trust.

Recording fees: Fees paid to the lender for the act of recording the sale of a home with local authorities, putting it on public record.

Redemption period: That period of time in those states where it is allowed in which a foreclosed mortgagor has to buy back his property by paying principal amount and interest and fees.

Refinance: To pay off existing debts with funds secured from new debt, often at a different interest rate.

Refinancing: The process of the same mortgagor paying off one loan with the proceeds from another loan.

Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Release of lien: An instrument discharging secured property from a lien.

Rent with Option: A contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.

Rescission of Contract: A cancellation of a contract. A homeowner has three days to cancel a contract once it is signed if the transaction uses equity in the home as security.

RESPA: Federal Real Estate Settlement Procedures Act.

Restrictive Covenants: Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

Right of survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Right-of-way: A privilege operating as an easement upon land, whereby a land owner, by grant or agreement, gives another the right to pass over land. Also knows as easement.

Sale-leaseback: A technique in which a seller deeds property to a buyer for a consideration and the buyer simultaneously leases the property back to the seller, usually on a long-term basis.

Sales Agreement: Same as Agreement for Sale and known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Sales Contract: Another name for a sales agreement, purchase agreement, etc. Not to be confused with a land contract, which is a conditional sales contract.

Satisfaction of mortgage: The record able instrument given by the lender to evidence payment in full of the mortgage debt. Sometimes knows as a release deed.

Second mortgage: One which takes rank immediately after a first mortgage on the same property, without any intervening liens, and is next entitled to satisfaction out of the proceeds of the property.

Secondary financing: Financing real estate with a loan, or loans, subordinate to a first mortgage or first trust deed.

Secondary mortgage market: The market where existing mortgages are bought and sold. It contrasts with the primary mortgage market, where mortgages are just originated, and packaged for delivery to the secondary market.

Servicing: The duties of the mortgage lender as a loan correspondent as specified in the servicing agreement for which a fee is received. Consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquency loan follow-up and loan analysis.

Severalty Ownership: Ownership by one person only. Sole ownership.

Special Assessments: A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc.

Special Lien: A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien.

Special Warranty Deed: A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

State Stamps: Same as documentary stamps. A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Survey: A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.

Takeout commitment: A promise to make a loan at a future specified time. It is commonly used to designate a higher cost, shorter term, backup commitment as a support for construction financing until a suitable permanent loan can be secured.

Tax: As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Tax Lien: A claim against property for the amount of its due and unpaid taxes.

Tenancy: A holding of real estate under any kind of right of title.

Tenancy At Will: A holding of real estate that can be terminated at the will of either the lessor or the lessee, usually with notice.

Tenancy by entirety: The joint ownership of property by a husband and wife where both are viewed as one person under common law that provides for the right of survivorship.

Tenancy in common: In law, the type of tenancy or estate created when real or personal property is granted, devised or bequeathed to two or more persons, in the absence of expressed words creating a joint tenancy. There is no right of survivorship.

Term: The period of time between the commencement date an termination date of a note, mortgage, legal document, or the contract.

Title: The formal right of ownership of property. As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.

Title Insurance: A policy issued by a title company after searching the title, representing the state of that title and insuring the accuracy of its search against claims of title defects.

Title Search: An examination of the records of the registry of deeds or other office which contains records of title documents to determine whether title to the property is good; i.e. whether there are any defects in the title.

Trustee: A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law. (See deed of trust.)

Truth-in-Lending Act: Federal law that assures every customer who has need for consumer credit is given meaningful information with respect to the cost of that credit. In most cases the credit cost must be expressed in the dollar amount of finance charges, and as an annual percentage rate computed on the unpaid balance of the amount financed. Also known as "Regulation Z" of the Federal Reserve Board.

Underwriting: The decision to make loan to a potential home buyer based on his/her credit, employment, assets, etc., and matching their risk to the appropriate rate and loan amount. VA mortgage: Home mortgage loan provided to veterans and their spouses which is guaranteed by the Veterans Administration.

Unencumbered property: A property the title to which is free and clear.

Usury: Charging more for the use of money than allowed by law.

VA Loans: A loan, made by a private lender that is partially guaranteed by the veterans Administration.

Variable Rate Mortgage: A long-term mortgage which includes a provision permitting the lending institution to adjust the contract's interest rate in response to changes in money market rates and the conditions of demand for mortgages.

Verification of Deposit (VOD): A verification signed by the borrower's financial institution stating the status and balance of the borrower's financial accounts.

Verification of Employment (VOE): A document signed by the borrower's employer verifying position and salary.

Warehousing: The holding of a mortgage on a short term basis pending either a sale to an investor or other long term financing.

Warranty deed: A deed in which the grantor or seller warrants or guarantees that good title is being conveyed, as opposed to a quitclaim deed that contains no representation or warrant as to the quality of title being conveyed.

Withdraw: A mortgage applicant may withdraw their application at any time without cause or recourse.

Yield-Spread-Premium: A fee which an investor or bank may pay to a mortgage broker for purchasing a mortgage on the wholesale level.

Zero-down: This term refers to the ability for one to buy a home by putting no money down on the purchase.

Zoning Ordinances: The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.

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